EXPERTS PLS HELP ME OUT....I'M IN A GR8 DILEMMA......
OUR TEACHER USES CORE CBSE ECONOMICS BY S K AGARWALA PUBLISHED BY GOYAL BROTHERS AND IN THAT BK THEY SAY THAT
IN MONOPOLISTIC MARKET THERE IS PERFECT KNOWLEDGE.
THEIR EXPLANATION:
ALL PRODUCERS HAV PERFECT KNOWLEDGE ABOUT D MARKET & TECH. ALL CONSUMERS ALSO HAV D KNOWLEDGE SO THAT THEY CAN CONVENIENTLY SHIFT FRM 1 SUBSTITUTE TO ANOTHER IN EVENT OF BIG PRICE DIFFERENCE BETN PRODUCTS.
BUT IN UR SITE & ANOTHER BK ITS JUS D OPP CASE .
WHICH 1 IS CORRECT AND Y ????
Devika and Pia, I am getting your concerns. Let's talk about this point and on the basis of our understanding, we will evaluate which version is right and which one is wrong. Look, as we know that in a monopolistic competition, all the firms are producing the same kind of goods, yet there exists a difference. The difference is basically fictitious in nature, since the sellers deliberately create this in order to differentiate their own products from the others'. Say in toothpaste market, all the toothpaste manufacturing firms are producing the same good (toothpaste) which serve the same purpose for different consumers. For instance, if I use say Pepsodent and you use Colgate, then obviously we both are using these products for dental protection. Thus, in this way, all the products in a monopolistic market are similar, hence, can be used as substitutes. Since, the goods are substitutes to each other, so in the book by S.K.Agarwal, it is mentioned that the buyers and the producers have perfect knowledge about the goods.
Now, let's explore this concept from another aspect. Say, if you have been using Colgate for many years now, even if Pepsodent comes up with some thing different, then my question is are you going to shift your preferences towards it? I think, it will be no, however, it might be yes for some people. But anyway, this requires a good knowledge of the two goods, their ingredients and their prices. That is why, it is regarded that in monopolistic market, there exists an imperfect knowledge among the buyers and the sellers. If one seller knows the formula, chemical composition and production process of another good, then it would have been pretty easier for a producer to carry out strategies accordingly and capture the whole market. Simply think, why Colgate has still not been able to overthrow Pepsodent or vice-versa? It is simply because of imperfect knowledge between these two.
Thus, based on this discussion, what I can say is that even though the products are similar yet they are differentiated via advertisements. But due to brand loyalty, people do not switch to other goods and that is why goods can not be regarded as perfect substitutes. So, I would conclude by saying that there exists an imperfect knowledge among the buyers and the sellers in a monopolistic market.
Devika, you should approach your school teacher and discuss about the point along this line of thought and see what she states. Do let me know about the same.
Keep posting!!
Now, let's explore this concept from another aspect. Say, if you have been using Colgate for many years now, even if Pepsodent comes up with some thing different, then my question is are you going to shift your preferences towards it? I think, it will be no, however, it might be yes for some people. But anyway, this requires a good knowledge of the two goods, their ingredients and their prices. That is why, it is regarded that in monopolistic market, there exists an imperfect knowledge among the buyers and the sellers. If one seller knows the formula, chemical composition and production process of another good, then it would have been pretty easier for a producer to carry out strategies accordingly and capture the whole market. Simply think, why Colgate has still not been able to overthrow Pepsodent or vice-versa? It is simply because of imperfect knowledge between these two.
Thus, based on this discussion, what I can say is that even though the products are similar yet they are differentiated via advertisements. But due to brand loyalty, people do not switch to other goods and that is why goods can not be regarded as perfect substitutes. So, I would conclude by saying that there exists an imperfect knowledge among the buyers and the sellers in a monopolistic market.
Devika, you should approach your school teacher and discuss about the point along this line of thought and see what she states. Do let me know about the same.
Keep posting!!